SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 333-35021
---------
TELETRAC, INC.
------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1172403
--------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
3220 Executive Ridge Dr. #100, Vista, CA 92083
------------------------------------------------
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code (760) 597-0510
-------------
Not Applicable
---------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes X No
--- ---
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13
or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by
a court. Yes X No --- ---
As of November 1, 1999, Teletrac, Inc. had outstanding
10,000,000 shares of Common Stock, $.01 par value per share
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Predecessor (note 1) New Company (note 1)
December 31, September 30,
1998 1999
(audited) (unaudited)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $5,953,505 $3,118,644
Accounts receivable, less allowances of $983,154 and $1,181,818 4,608,619 3,541,262
at 1998 and 1999, respectively
Inventories (note 3) 8,319,016 7,626,208
Prepaid expenses and other 1,483,843 1,679,146
Short-term portion of restricted investments 6,125,000 --
------------- -------------
Total current assets $ 26,489,983 $ 15,965,260
------------- -------------
RESTRICTED INVESTMENTS, HELD TO MATURITY 22,023,208 --
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $7,126,336 and $0 at 1998 and 1999,
respectively (note 4) 19,135,386 7,741,424
INVENTORIES, LONG-TERM 3,435,700 --
LICENSES AND OTHER, net of accumulated amortization of
$630,754 and $0 at 1998 and 1999, respectively 6,312,294 289,807
ACCOUNTS RECEIVABLE-EQUIPMENT LEASING (note 5) -- 853,499
------------- -------------
Total assets $ 77,396,571 $ 24,849,990
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - trade $ 1,505,499 $ 866,230
Accrued expenses 3,103,998 3,086,691
Current portion of long-term obligations 1,246,999 107,862
Accrued interest 6,125,000 --
Refrequency liability 64,469 --
Secured senior note payable, 10% (note 6) -- 3,000,000
------------- -------------
Total current liabilities $ 12,045,965 $ 7,060,783
------------- -------------
SENIOR NOTES, 14% DUE 8/1/2007 98,445,776
SENIOR SECURED NOTE, 9% due 9/30/2004 (note 7) 15,000,000
LONG-TERM OBLIGATIONS 2,769,638 425,695
STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK, redeemable cumulative, 15% dividend,
190,477 shares authorized and 190,476.19 shares issued
and outstanding 44,033,500 --
PREFERRED STOCK, undesignated, 190,477 shares
authorized, none issued or outstanding 10,034,181 --
PREFERRED STOCK, redeemable, 400,000 shares authorized,
none issued or outstanding
Common stock, Class A, $.01 par value, 1,000,000 shares
authorized and 249,000 issued and outstanding 2,490 --
Common stock, Class B, $.01 par value, 70,000 shares
authorized and none issued or outstanding -- --
Warrants, 3,000,000 to purchase 3,000,000 shares of
common stock; 800,000 to purchase 800,000 shares
of common stock 468,000
Common stock, $.01 par value, 20,000,000 shares authorized
and 10,000,000 issued 100,000
Paid-in-capital 17,815,909 --
Additional paid-in-capital 1,795,512
Accumulated deficit (107,750,888) --
------------- -------------
Total stockholders' equity (deficit) (35,864,808) 2,363,512
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 77,396,571 $ 24,849,990
============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Predecessor
Nine Months Ended
September 30,
---------------------------------
1998 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) Income $ (30,863,245) $ 107,750,891
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 3,871,767 4,341,131
Accretion of discount on senior notes 99,885 196,853
(Gain)/loss on assets disposed/sold 25,909 15,274
Loss on assets from restructuring 60,394
Gain of debt discharge (123,696,449)
Changes in working capital and other assets and
liabilities, net of acquisition and refrequency (7,727,269) 1,426,953
Restricted cash 1,750,000 --
Refrequency liability (2,483,974) (58,184)
Accrued interest on senior notes (3,470,833) --
------------- -------------
Total adjustments (7,934,515) (117,714,028)
------------- -------------
Cash used in operating activities (38,797,760) (9,963,137)
------------- -------------
INVESTING ACTIVITIES:
Proceeds from sale of assets 21,947 10,500
Acquisition of property and equipment (10,296,179) (1,189,983)
Acquisition of other intangible assets (580,371) (705,596)
------------- -------------
Cash used in investing activities (10,854,603) (1,885,080)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from Secured Senior Note - short-term -- 3,000,000
Restricted investments 12,782,455 6,503,863
Cost of credit facility (2,253) --
Payments on capital leases (689,698) (490,507)
------------- -------------
Cash provided by financing activities 12,090,504 9,013,356
------------- -------------
NET CHANGE IN CASH (37,561,859) (2,834,861)
CASH AND CASH EQUIVALENTS, beginning of period 41,480,737 5,953,505
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 3,918,878 $ 3,118,644
============= =============
SUPPLEMENTAL DISCLOSURE
Interest (net of amounts capitalized) $ 10,783,664 $ 7,734,877
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Paid-in Retained
Series A and A-1 Series B Class A Class B Par Warrants Capital Earnings
---------------- -------- ------- ------- --- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 44,033,500 $ 10,034,181 $ 2,490 $ -- $ -- $ 7,039,954 $ 10,775,955 $ (107,750,888)
Net Income -- -- -- -- 107,750,888
Preferred stock dividends 3,852,932 292,664 (4,145,596)
Gain on debt discharge (47,886,432) (10,326,845) (2,490) (7,039,954) (6,630,359)
Issuance of new
recapitalization in
connection with
reorganization -- -- -- -- 100,000 468,000 1,795,512 --
------------- ------------ ------- ------- -------- ---------- ------------ ------------
BALANCE (New Company),
September 30, 1999 $ -- $ -- $ -- $ -- $ 100,000 $ 468,000 $ 1,795,512 $ --
============= ============ ======= ======= ======== =========== ============ ============
</TABLE>
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Predecessor Predecessor
For the Nine Months Three Months
Ended September 30, Ended September 30,
-------------------------------- --------------------------------
1998 1999 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service revenue $ 12,941,488 $ 15,740,509 $ 4,598,232 $ 5,304,691
Equipment revenue 7,803,095 6,801,734 2,620,054 2,120,854
Equipment leasing - interest income 15,770 15,770
Other revenue -- 2,778,667 -- --
--------------- --------------- --------------- ---------------
Total operating revenues 20,744,583 25,336,680 7,218,286 7,441,315
OPERATING EXPENSES:
Cost of service revenue 2,946,986 2,536,639 1,113,220 779,741
Cost of equipment revenue 5,959,283 4,649,059 2,042,224 1,442,152
Selling, general and administrative 22,270,248 16,848,074 7,861,840 4,395,578
Engineering 6,743,495 4,761,280 2,411,011 1,312,118
Research & development costs 1,091,440 2,341 321,057 --
Refrequency costs 390,000 -- -- --
Depreciation and amortization 3,871,767 4,341,131 1,611,696 1,249,450
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (22,528,636) (7,801,844) (8,142,762) (1,737,724)
--------------- --------------- --------------- ---------------
OTHER EXPENSE (INCOME):
Interest expense 10,783,664 7,734,877 3,667,994 43,422
Interest and other income (2,449,055) (912,909) (686,524) (267,912)
--------------- --------------- --------------- ---------------
EARNINGS BEFORE REORGANIZATION
COSTS AND EXTRAORDINARY GAIN
OF DEBT DISCHARGE (30,863,245) (14,623,812) (11,124,232) (1,513,234)
REORGANIZATION COSTS 1,321,746 282,082
EXTRAORDINARY GAIN ON DISCHARGE OF
INDEBTEDNESS, NET OF INCOME TAXES (123,696,449) (123,696,449)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (30,863,245) $ 107,750,891 $ (11,124,232) $ 121,901,133
=============== =============== =============== ===============
PREFERRED DIVIDENDS 3,712,500 3,553,366 1,237,500 --
--------------- --------------- --------------- ---------------
INCOME(LOSS) APPLICABLE TO
COMMON STOCK $ (34,575,745) $ 104,197,525 $ (12,361,732) $ 121,901,133
=============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION.
On June 9, 1999, the Company filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code. On September 15, 1999, the Company's Second
Amended Plan of Reorganization (the "Plan") was confirmed by the court and the
plan was effective September 29, 1999, as discussed below. The order and details
of the Plan are discussed in the Company's Report on Form 8-K, filed on
September 30, 1999 (the "September 8-K").
The "Predecessor Company" refers to Teletrac, Inc. prior to the effectiveness of
the Plan of Reorganization, while the "New Company" refers to Teletrac, Inc.
after the entry of the order by the bankruptcy court confirming the
Reorganization Plan.
The Company accounted for the reorganization using fresh-start reporting.
Accordingly, all assets and liabilities are restated to reflect their
reorganization value, which approximates fair value at the date of
reorganization. The Plan of Reorganization, summarizing the adjustments required
to record the reorganization and the issuance of the various securities in
connection with the implementation of the Plan, was filed as an exhibit to the
Company's 8-K filed on September 30, 1999.
The condensed consolidated interim financial statements of Teletrac, Inc. and
its wholly owned subsidiary Teletrac License, Inc. included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission") and reflect all
adjustments that are, in the opinion of management, necessary to fairly present
the financial position, results of operations, and cash flows for the interim
periods. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. Management believes that the disclosures made are adequate to
make the information presented not misleading. The results for interim periods
are not necessarily indicative of the results for the full year. The interim
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's audited consolidated financial
statements for the year ended December 31, 1998 filed on Form 10-K.
On September 29th the Bankrupcty Court confirmed the Company's Plan of
Reorganization. The confirmed Plan provided for the following:
Long-term obligations in the form of leases and notes on capital equipment
purchases:
Current portion of $107,862
Long-term $425,695
Senior Debt:
The previous holders of approximately $105 million in Senior Notes and Warrants
received the following instruments in exchange for their notes;
$21.8 million cash and an aggregate $15 million Senior Note with a 9%
interest rate due September 30, 2004. The note has a deferred interest
election provision whereby the Company can elect to pay interest by the
issuance of Deferred Interest Notes with a 12% interest rate due September
30, 2004.
Common Shares 10,000,000
$3 million Secured Senior Note 3,000,000
NOTE 2 - COMPANY OVERVIEW
The Company is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable
real-time method of locating vehicles in selected metropolitan areas. In
addition, the Company has recently begun to provide vehicle location and two-way
digital messaging to its customers using cellular digital packet data (or
"cdpd") coupled with global positioning (or "gps") by reselling cdpd airtime
purchased from cellular carriers. This new service allows the Company to offer
its services in markets where it does not have its proprietary technology
deployed. The Company's system is designed to enable customers to better manage
their mobile workforce, provide security for their property and personnel and
communicate more effectively with mobile workers.
<PAGE>
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
involve the installation in each vehicle of a Vehicle Location Unit "VLU" or a
"VLU+" in the case of a cdpd/gps application. The VLU is a radio transceiver
that receives and transmits signals used to determine a vehicle's location. In
addition to the VLU, commercial fleet customers generally purchase software or
location services from the Company. The Company's primary product for commercial
fleets is Fleet Director Enterprise Edition(TM), a proprietary software
application that permits simultaneous location of all fleet vehicles on a
real-time 24-hour-a-day basis through a digitized map displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director Enterprise Edition(TM) can be complemented with the
Company's messaging units, which allow two-way messaging between the fleet
dispatcher and drivers directly from the Fleet Director Enterprise Edition(TM)
screen.
As of September 30, 1999, the Company operated in twelve metropolitan markets:
Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco,
San Diego, Sacramento, New York and Washington D.C. In San Francisco and
Sacramento, the Company no longer operates its propietary location technology to
service customers but has converted its customers in that market to its new VLU+
offering. The Company also uses its proprietary location systems to provide
vehicle location and stolen vehicle recovery services to consumers in its Los
Angeles and Miami markets.
In addition, the Company sold its New York and Washington D.C. networks to
Ituran, USA and closed its San Francisco/Sacramento network during the fiscal
quarter ended September 30, 1999.
The Company's revenues are derived from sales and installation of its VLU's,
messaging units, proprietary software and charges for its services.
<PAGE>
NOTE 3 - INVENTORIES
In accordance with Statement of Position 90-7 ("SOP 90-7"), the Company restated
its inventory at fair market value. Inventories consisted of the following at
December 31, 1998 and September 30, 1999 (unaudited):
December 31, 1998 September 30, 1999
Predecessor New Company
Vehicle Location Units ("VLU") $ 8,178,316 $5,652,563
Messaging Units 1,920,656 957,079
Computers & Software 207,882 280,036
Other Inventory 1,447,862 736,530
--------- -------
Total Inventory 11,754,716 7,626,208
Less: Long Term Inventory 3,435,700 0
--------- -
Current Portion $ 8,319,016 $7,626,208
=========== ==========
NOTE 4 - PROPERTY AND EQUIPMENT
In accordance with SOP 90-7, the Company reduced the carrying value of its
property and equipment in order to reflect the new capital and equity structure.
The total writedown was $10.0 million and was spread evenly across all property
and equipment. Property and equipment, including equipment under capital leases,
consisted of the following at December 31, 1998 and September 30, 1999
(unaudited):
December 31, 1998 September 30, 1999
Predecessor New Company
System Equipment $16,867,532 $ 5,150,430
Automobiles 528,666 117,084
Furniture & Fixtures 2,439,229 639,880
Computer Equipment 5,343,246 1,277,613
Leasehold Improvements 243,961 64,694
Construction in Progress 839,088 491,723
------- ---------
Total Property & Equipment $26,261,722 $ 7,741,424
----------- -----------
Accumulated Depreciation (7,126,336) ( 0 )
----------- -------------
Net Property & Equipment $19,135,386 $7,741,424
=========== ==========
NOTE 5 - ACCOUNTS RECEIVABLE - EQUIPMENT LEASING
During the bankruptcy process, the Company was unable to attract third party
leasing companies to lease the equipment sold to the customer. Therefore, the
<PAGE>
Company chose to act as a lessor to its customers for the equipment sold to
them. The leases are 36 month closed end leases and were booked as revenue and a
receivable at the time of equipment installation. Interest on the leases is
recorded monthly as billed.
NOTE 6 - SECURED SENIOR NOTE PAYBLE
On September 29, 1999 the Company issued a $3.0 million senior secured note to
various investors in exchange for cash. The note bears a 10% coupon paid
quarterly and is due in full on September 30, 2000. The note included 3 million
detachable Class A Warrants for the purchase of 3 million shares of Common
Stock.
NOTE 7 - 9% NOTE DUE 2004
Based on the Plan, the Company issued a $15,000,000 Senior Note with a 9%
interest rate due September 30, 2004. Interest is due semi-annually. The note
has a deferred interest election provision whereby the Company can elect to pay
interest by the issuance of Deferred Interest Notes with a 12% interest rate due
September 30, 2004.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
On June 9, 1999, the Company filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code. On September 15, 1999, the Company's Second
Amended Plan of Reorganization (the "Plan") was confirmed by the court and the
plan was effective September 29, 1999, as discussed below. The order and details
of the Plan are discussed in the Company's Report on Form 8-K, filed on
September 30, 1999, (the "September 8-K").
In addition, the Company sold its New York and Washington D.C. networks to
Ituran, USA and closed its San Francisco/Sacramento facilities during the fiscal
quarter ended September 30, 1999. These actions accounted for most of the
changes in the Company's results of operations, as discussed below.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the "Risk Factors" set forth in the
Company's Registration Statement on Form S-1 filed on September 5, 1997, as
amended.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
REVENUES. Total revenues for the three months ended September 30, 1999
were $7.4 million, compared to $7.2 million for the three months ended September
30, 1998.
Equipment revenues decreased to $2.1 million for the three months ended
September 30, 1999 from $2.6 million for the three months ended September 30,
1998, principally due to fewer sales during the period. The reduction in number
of sales was primarily due to a sharp reduction in direct sales personnel. Gross
commercial installations decreased to 3,737 vehicle applications for the three
months ended September 30, 1999 from 4,308 vehicle applications for the three
months ended September 30, 1998.
Service revenues increased to $5.3 million for the three months ended
September 30, 1999 from $4.6 million for the three months ended September 30,
1998, an increase of 15%, primarily due to an increase in the average commercial
service revenue per vehicle application to $29.75 in September 1999 from $24.56
in September 1998. Total commercial vehicle applications in service at September
30, 1999 were 56,994 as compared to 57,724 on September 30, 1998.
COST OF SERVICE REVENUES. Cost of revenues includes the direct cost of
providing service (network telephone, billing, roadside assistance and bad debt
expense). Cost of revenues decreased to $0.8 million for the three months ended
September 30, 1999 from $1.1 million for the three months ended September 30,
1998. Cost of service revenues declined due to the shutting down of the San
Francisco/Sacramento networks along with the sale of the New York and Washington
DC networks to Ituran, USA.
COST OF EQUIPMENT. Cost of equipment decreased to $1.4 million for the
three months ended September 30, 1999 from $2.0 million for the three months
ended September 30, 1998.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses decreased by $4.9 million, to $5.7 million for the
three months ended September 30, 1999 from $10.6 million for the three months
ended September 30, 1998. The Company reduced expenses through significant
reductions in personnel along with the closing of the San Francisco/Sacramento
network and sale of the New York and Washington DC networks.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
for the three months ended September 30, 1999 to $1.2 million from $1.6 million
for the three months ended September 30, 1998, primarily due to the disposal of
certain assets related to networks no longer in use or owned by the Company.
<PAGE>
OPERATING LOSSES. Operating losses incurred by the Company were $1.7
million for the three months ended September 30, 1999, as compared to $8.1
million for the three months ended September 30, 1998, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $0.5 million for the three
months ended September 30, 1999 versus $3.7 million for the three months ended
September 30, 1998. Interest expense related to the senior note and warrants was
halted upon the Chapter 11 filing.
REORGANIZATION COSTS AND DEBT DISCHARGE. Reorganization costs were
$0.3 million for the three months ended September 30, 1999. The Company adopted
SOP 90-7 to account for the bankruptcy reorganization and as such has recognized
a gain from the debt discharge, equity discharge, and reorganization of $124.2
million.
NET INCOME/LOSS. For the reasons discussed above and interest income
of $0.3 million, net income was $121.9 million for the three months ended
September 30, 1999 from a loss of $11.1 million for the three months ended
September 30, 1998. No tax benefit has been recognized for any period due to the
uncertainty of net operating loss carry-forward utilization.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
REVENUES. Total operating revenues for the nine months ended September
30, 1999 were $25.3 million, compared to $20.7 million for the nine months ended
September 30, 1998, an increase of 22%.
Equipment revenues decreased to $6.8 million for the nine months ended
September 30, 1999 from $7.8 million for the nine months ended September 30,
1998, principally due to fewer sales during the period. The reduction in number
of sales was primarily due to a sharp reduction in direct sales personnel. Gross
commercial installations decreased to 10,856 vehicle applications for the nine
months ended September 30, 1999 from 15,272 vehicle applications for the nine
months ended September 30, 1998.
Service revenues increased to $15.7 million for the nine months ended
September 30, 1999 from $12.9 million for the nine months ended September 30,
1998, an increase of 22%, primarily due to an increase in the average commercial
service revenue per vehicle application to $29.75 in September 1999 from $24.56
in September 1998. Total commercial vehicle applications in service at September
30, 1999 were 56,994, as compared to 57,724 on September 30, 1998.
COST OF REVENUES. Cost of revenues includes the direct cost of
providing service (network telephone, billing, roadside assistance and bad debt
expense). Cost of revenues decreased to $2.5 million for the nine months ended
September 30, 1999 from $2.9 million for the nine months ended September 30,
1998. Cost of service revenues declined due to the shutting down of the San
Francisco/Sacramento networks along with the sale of the New York and
Washington DC networks to Ituran, USA.
COST OF EQUIPMENT. Cost of equipment decreased to $4.6 million for the
nine months ended September 30, 1999 from $6.0 million for the nine months ended
September 30, 1998.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses decreased by $8.5 million, to $21.6 million for the
nine months ended September 30, 1999 from $30.1 million for the nine months
ended September 30, 1998. The Company reduced expenses through significant
<PAGE>
reductions in personnel along with the shutting down of the San Francisco/
Sacramento network and sale of the New York and Washington DC networks. The
Company expensed $1.1 million in the nine months ended September 30, 1998
relating to research and development.
REFREQUENCY COSTS. Refrequency costs accrued for the nine months ended
September 30, 1998 was $0.4 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
for the nine months ended September 30, 1999 to $4.3 million from $3.9 million
for the nine months ended September 30, 1998, primarily due to depreciation on
additional assets in the first part of the year.
OPERATING LOSSES. Operating losses incurred by the Company were $7.8
million for the nine months ended September 30, 1999, as compared to $22.5
million for the nine months ended September 30, 1998, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $8.2 million for the nine
months ended September 30, 1999 versus $10.8 million for the nine months ended
September 30, 1998. Interest expense related to the senior note and warrants was
halted upon the Chapter 11 filing.
REORGANIZATION COSTS AND DEBT DISCHARGE. Reorganization costs were
$1.3 million for the nine months ended September 30, 1999. The Company adopted
SOP 90-7 to account for the bankruptcy reorganization and as such has recognized
a gain from the debt discharge, equity discharge, and reorganization of $124.2
million.
NET INCOME/LOSS. For the reasons discussed above and interest income
of $0.9 million, net income was $121.9 million for the nine months ended
September 30, 1999, compared to a loss of $30.9 million for the nine months
ended September 30, 1998. No tax benefit has been recognized for any period due
to the uncertainty of net operating loss carry-forward utilization.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures were $1.2 million for the nine months ended
September 30, 1999, primarily for additional infrastructure in the Company's
existing markets. The Company currently expects that its aggregate capital
expenditures will be $2.2 million for both 1999 and 2000 combined. These capital
expenditures will consist primarily of costs associated with the infrastructure
of its existing markets.
The Company received confirmation of its reorganization plan from the
United States Bankruptcy Court for the District of Delaware on September 15,
1999. The Plan went effective on September 29, 1999 and the Company is no longer
a debtor-in-possession. On September 29, 1999 the Company received a $3 million
cash infusion in the form of a 10% Senior Secured Note due September 30, 2000.
The proceeds paid down the DIP facility of $600,000 along with various cash
claims arising through the bankruptcy plan totaling approximately $170,000. The
remaining cash is available for the working capital of the Company.
Based on the Plan the Company issued a $15 million Senior Note with a
9% interest rate due September 30, 2004. The note has a deferred interest
election provision whereby the Company can elect to pay interest by the issuance
of Deferred Interest Notes with a 12% interest rate due September 30, 2004.
The Company believes, based on its business plan, that it has
sufficient capital in both the short-and long-term using both the available cash
and the Company's positive working capital position. However, there is no
assurance that the Company will not need addition capital in the future.
INFLATION
The Company believes that to date inflation has not had a material
effect on its results of operations. Although inflation may in the future effect
the cost of VLU and messaging units sold by the Company, the Company expects
that technology and engineering improvements are likely to offset any
foreseeable cost increases.
<PAGE>
YEAR 2000 EFFORT
The Company has performed internal testing and evaluation on all products,
services and internal computer hardware and software utilized by the Company in
providing services to customers to ensure compliance with the Year 2000 issue.
This testing has included both information technology systems and
non-information technology systems such as microcontrollers utilized in the
Company's vehicle location units. Based upon the results of this internal
testing, management has determined that the Year 2000 issue will not have a
material impact on the Company's business, results of operations or financial
condition.
Current customers have been notified, in writing, that the Company's current
software and hardware products are Year 2000 compliant. A previous version of
Fleet Director (R), which is currently utilized by few customers, is not Year
2000 compliant. For customers utilizing this version, an upgrade to the most
current version of Fleet Director, which is Year 2000 compliant, is being
provided at no charge. The overall impact of the free software upgrade is not
material to the overall results of operations or financial condition of the
Company. Also, as a general service, Customers have been notified in the same
letter that each personal computer utilized by the customer, while not a product
or liability of the Company, should be tested to ensure it is Year 2000
compliant.
As part of its Year 2000 plan, the Company is seeking confirmation from certain
material vendors and telecommunications service and equipment providers
("Primary Vendors") that they are, or developing and implementing plans to
become, Year 2000 compliant. Confirmations received to date from its Primary
Vendors have indicated that such respondents have or are in the process of
implementing remediation procedures to ensure Year 2000 compliance.
Although the Company expects its system as a whole to be Year 2000 compliant, on
or before December 31, 1999, it cannot predict the outcome or the success of its
Year 2000 compliance programs of the Primary Vendors, nor can it predict the
impact on its financial condition or results of operations, if any, in the event
that such Year 2000 compliance programs of its Primary Vendors are not
successful.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Plan of Reorganization, as described in and filed as an exhibit to
the Registrant's September 8-K, has been confirmed and became effective
September 29,1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As described in the September 8-K, the Registrant issued an aggregate
$3 million of Senior Secured Notes due 2000 and Class A Common Stock Warrants to
purchase common stock of the Registrant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) REPORTS ON FORM 8-K.
On September 30, 1999, the Registrant filed its Report on Form 8-K
with respect to the confirmation and effectiveness of its Second Amended Plan of
Reorganization pursuant to Chapter 11 of the United States Bankruptcy Code.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELETRAC, INC.
By: /s/ Alan B. Howe
------------------------------
Name: Alan B. Howe
Title: Chief Financial Officer
Date: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,188,644
<SECURITIES> 0
<RECEIVABLES> 4,723,080
<ALLOWANCES> 1,181,818
<INVENTORY> 7,626,208
<CURRENT-ASSETS> 15,965,260
<PP&E> 7,741,424
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,849,990
<CURRENT-LIABILITIES> 7,060,783
<BONDS> 15,000,000
0
0
<COMMON> 100,000
<OTHER-SE> 2,263,512
<TOTAL-LIABILITY-AND-EQUITY> 24,849,990
<SALES> 7,441,315
<TOTAL-REVENUES> 7,441,315
<CGS> 1,442,152
<TOTAL-COSTS> 2,221,893
<OTHER-EXPENSES> 6,957,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,422
<INCOME-PRETAX> 121,901,133
<INCOME-TAX> 0
<INCOME-CONTINUING> 121,901,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,901,133
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
